Sen. Josh Hawley recently proposed a bill that would increase the federal minimum wage from $7.25 to $15 by 2026, arguing that if “woke corporations…can afford to pay their CEOs millions, they can afford to pay working Americans a decent wage.” On paper, it’s a push for higher pay for working Americans. In practice, it begs the question: Who really pays the price for doubling the minimum wage overnight?
It is a misconception that larger companies are automatically better equipped to absorb increases in labor costs. What really matters is the profit margin of the industry; in the hospitality industry, profit margins are typically in the low single-digits. Still, smaller businesses often face greater challenges because they operate with limited resources and little financial cushion.
Contrary to Sen. Hawley’s claim, these mom-and-pop shops, restaurants, and convenience stores employ a large share of workers earning at or near the federal minimum wage. In fact, more than half of these hourly workers are employed by companies with fewer than 100 employees, many of which may struggle to handle a significant wage increase.
Using the latest Census Bureau Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) data, we examined hourly workers making within a dollar of the current federal minimum wage ($8.25 or less) across firms of various sizes.
Our data shows that approximately 29.4% of workers earning $8.25 or less are employed by businesses with between 10 and 24 employees. Indeed, nearly two-thirds (64%) of the minimum wage workforce work for businesses with 500 or fewer employees.
A $15 federal minimum wage may sound good in theory, but the vast majority of economic studies show it has unintended consequences if actually implemented. Small businesses and entry-level workers are the ones most exposed to this fallout. Instead of rushing toward a nationwide increase, policymakers should first consider the economic conditions and cost of living that could turn a policy intended to boost wages into an economic disaster for businesses and their employees.